Duke Energy 2010 Annual Report Download - page 20

DUKE ENERGY CORPORATION / 2010 ANNUAL REPORT
18
NON-GAAP FINANCIAL MEASURES
Adjusted Diluted Earnings per Share (“EPS”)
Duke Energy’s 2010 Annual Report references 2010 adjusted
diluted EPS of $1.43. Adjusted diluted EPS is a non-GAAP
(generally accepted accounting principles) financial measure
as it represents diluted EPS from continuing operations
attributable to Duke Energy Corporation common shareholders,
adjusted for the per share impact of special items and the mark-
to-market impacts of economic hedges in the Commercial Power
segment. Special items represent certain charges and credits
which management believes will not be recurring on a regular
basis, although it is reasonably possible such charges and
credits could recur. Mark-to-market adjustments reflect the
mark-to-market impact of derivative contracts, which is
recognized in GAAP earnings immediately as such derivative
contracts do not qualify for hedge accounting or regulatory
accounting, used in Duke Energy’s hedging of a portion of
the economic value of certain of its generation assets in the
Commercial Power segment. The economic value of the
generation assets is subject to fluctuations in fair value due
to market price volatility of the input and output commodities
(e.g., coal, power) and, as such, the economic hedging involves
both purchases and sales of those input and output commodities
related to the generation assets. Because the operations of the
generation assets are accounted for under the accrual method,
management believes that excluding the impact of mark-to-
market changes of the economic hedge contracts from adjusted
earnings until settlement better matches the financial impacts
of the hedge contract with the portion of the economic value
of the underlying hedged asset. Management believes that the
presentation of adjusted diluted EPS provides useful information
to investors, as it provides them an additional relevant
comparison of the company’s performance across periods.
Adjusted diluted EPS is also used as a basis for employee
incentive bonuses.
The most directly comparable GAAP measure for adjusted
diluted EPS is reported diluted EPS from continuing operations
attributable to Duke Energy Corporation common shareholders,
which includes the impact of special items and the mark-to-
market impacts of economic hedges in the Commercial Power
segment. The following is a reconciliation of reported diluted
EPS from continuing operations to adjusted diluted EPS for
2010, 2009, and 2008:
2010 2009 2008
Diluted EPS from continuing operations,
as reported $1.00 $0.82 $1.01
Diluted EPS from discontinued operations,
as reported — 0.01 0.01
Diluted EPS from extraordinary items,
as reported — — 0.05
Diluted EPS, as reported $1.00 $0.83 $1.07
Adjustments to reported EPS:
Diluted EPS from discontinued operations — (0.01) (0.01)
Diluted EPS from extraordinary items — — (0.05)
Diluted EPS impact of special items
and mark-to-market in
Commercial Power (see below) 0.43 0.40 0.20
Diluted EPS, adjusted $1.43 $1.22 $1.21
The following is the detail of the $(0.43) per share in
special items and mark-to-market in Commercial Power
impacting adjusted diluted EPS for 2010:
2010
Diluted
Pre-Tax Tax EPS
(In millions, except per-share amounts) Amount Effect Impact
Goodwill and other impairments $(660) $ 58 $(0.46)
Voluntary retirement plan &
office consolidation costs (172) 67 (0.08)
Costs to achieve the Cinergy merger (27) 10 (0.01)
Litigation reserve (26) 10 (0.01)
Asset sales 248 (94) 0.12
Mark-to-market impact of economic hedges 33 (12) 0.01
Total adjusted EPS impact $(0.43)